- India’s strong growth prospects and recent stock market boom has piqued investor interest, drawing attention and increasing exposure to a once ignored market.
- Analysts highlighted financials, fast moving consumer goods, manufacturing and health care as ways to cash in on that boom.
India is poised to become the world’s second-largest economy by 2075, according to Goldman Sachs.
Darren Robb | The Image Bank | Getty Images
India’s strong growth prospects and recent stock market boom has piqued investor interest, drawing attention and increasing exposure to a once ignored market.
“India’s growth story is greater than the average … Whatever the world is grappling with, it’s business as usual for India,” said Feroze Azeez, deputy CEO of Anand Rathi Wealth.
Major economies were hit by higher inflation during the Covid-19 pandemic, but India’s inflation was already elevated. The country’s inflation rate stood at 7.59% in January 2020, while that of other large economies like the United Kingdom and Japan were low, at 1.8% and 0.8% respectively in the same month.
Azeez said high inflation is a situation that India is used to and it has “always traveled the path of higher inflation and higher interest rates.”
In June, India’s inflation rate was 4.81%, which remains within the Reserve Bank of India’s tolerance band of 2% to 6%. The central bank has left interest rates unchanged at 6.5% since April.
“All the macro variables are stacking and we are in the growth cycle … There is a paradigm shift and flight of capital from Indian households savings to equity to contribute to the India growth story,” Azeez told CNBC’s “Squawk Box Asia” last week.
The International Monetary Fund recently raised its 2023 growth forecast for India, citing stronger growth in the fourth-quarter last year, powered by domestic investment.
Both the Sensex and Nifty hit all-time highs in July and analysts are confident the indexes will bring positive returns for years to come.
“Many people have said in the past that India is the place to invest in, but they have been disappointed because [the momentum] will start and it’ll suddenly die out,” said Soumya Rajan, CEO and founder of Mumbai-based Waterfield Advisors.
But recently there has been a “confluence of positive flows” from both domestic retail and foreign institutional investors due to an “amazing allocation towards equity investments,” Peeyush Mittal, portfolio manager at Matthews Asia, told CNBC.
More companies are also adopting a “China plus one” strategy and setting up manufacturing operations in India, boosting the country’s long-term outlook, Nilesh Shah, managing director at Kotak Mahindra Asset Management said.
“There is a combination of positive sentiments, higher flows, and backing from the fundamentals which is causing the Indian market to move higher … Overall investments in India are on revival mode,” said Shah.
“So whichever way one looks at the economic numbers, India appears as an oasis in the global desert,” he added.
Although India’s monsoon season and general elections in 2024 could create volatility in the coming months, analysts remain optimistic and recommended four sectors.
India’s financial industry has done well recently, Rajan said, adding the sector is the biggest contributor to the country’s capital markets.
“The corporate balance on banks is the best it’s ever been,” Waterfield’s Rajan said. “We’ve had an outstanding run in what we’ve seen in the last few years and a lot will continue to happen in this space.”
Earlier this month, IDFC First Bank said its board had approved its merger with IDFC Ltd., which the company estimated would increase standalone book value by 4.9% compared with its financials as of March 31.
This came days after India’s largest private lender HDFC Bank completed its $40 billion mega merger with Housing Development Finance Corporation, making it the world’s fourth largest bank by market cap.
Analysts said Indian banks also remained insulated from the Adani crisis. In February, short seller firm Hindenburg accused the conglomerate of decades of stock manipulation and accounting fraud.
“The fact that they weren’t caught on the wrong side of that entire trade was, was good. So clearly, their underwriting standards are looking much better,” she highlighted.
Matthews’ Mittal said India’s HDFC Bank and ICICI Bank are good buys and are set to continue taking market share from public sector banks. Shares of HDFC Bank have gained 1.4% so far this year, while ICICI Bank has jumped 11%.
Although Rajan was optimistic, she remains neutral on banks as the sector “had a really good run, so the exponential upside is not huge, but will be fair.”
Mittal also noted there are “decent” opportunities in non-banking financial names such as Bajaj Finance and Mahindra…
Read More: India’s stock market has rallied to all-time highs that could continue